The Renewable Energy Production Tax Credit
The purpose of the credit is to provide federal tax incentives for renewable energy projects. Its intention is to improve the economics of renewable energy technologies and accelerate market adoption; stimulate the economy by creating jobs in the renewable energy sector; encourage investment in a public good (reduced pollution and robust energy generation); and encourage investment in renewable technology research and development.
The Renewable Energy Production Tax Credit (PTC) was originally enacted by the Energy Policy Act of 1992. It has since been extended and modified through legislation with the most recent changes deriving from the American Recovery and Reinvestment Act, which was passed in February 2009.
In general, the PTC reduces the federal income taxes of qualified tax-paying owners of renewable energy projects based on the electrical output of renewable energy facilities. Each kilowatt-hour (kWh) generated by an eligible facility and supplied to the electricity grid reduces the amount of federal income tax owed, which provides an economic incentive to develop and deploy technologies that harness renewable resources, such as wind, biomass, and geothermal energy. These are the guidelines that were set forth for 2010.
|Resource Type||In-Service Deadline||Credit Amount|
|Wind||December 31, 2012||2.2¢/kWh|
|Closed-Loop Biomass||December 31, 2013||2.2¢/kWh|
|Open-Loop Biomass||December 31, 2013||1.1¢/kWh|
|Geothermal Energy||December 31, 2013||2.2¢/kWh|
|Landfill Gas||December 31, 2013||1.1¢/kWh|
|Municipal Solid Waste||December 31, 2013||1.1¢/kWh|
|Qualified Hydroelectric||December 31, 2013||1.1¢/kWh|
|Marine and Hydrokinetic||December 31, 2013||1.1¢/kWh|
The duration of the credit is generally 10 years after the date the facility is placed in service, but there are two exceptions:
1) Open-loop biomass, geothermal, small irrigation hydro, landfill gas and municipal solid waste combustion facilities placed into service after October 22, 2004, and before enactment of the Energy Policy Act of 2005, on August 8, 2005, are only eligible for the credit for a five-year period.
2) Open-loop biomass facilities placed in service before October 22, 2004, are eligible for a five year period beginning January 1, 2005.
In addition, the tax credit is reduced for projects that receive other federal tax credits, grants, tax-exempt financing, or subsidized energy financing. It should also be noted that solar facilities placed in-service after December 31, 2005 are no longer eligible for this incentive.
Please keep in mind that the American Recovery and Reinvestment Act of 2009 allows taxpayers eligible for the PTC to take the federal Business Energy Investment Tax Credit (ITC) or receive a Renewable Energy Grant from the U.S. Treasury Department instead of claiming the PTC for new installations.
Authored by Jason Deirmenjian, CPA
November 14th, 2010